PACIFIC  RAILROAD  FUNDING  BILL. 


SPEECH 


OF 


Hon.  JAMES  McLACHLAN, 


OF    CALIFORNIA, 


HOUSE  OF  REPRESENTATIVES, 


JANUARY    9,   1897. 


WASH  INGTON. 
1897. 


SPEECH 

OF 

HON.   JAMES  McLACHLAN. 


The  House  being  in  Committee  of  the  Whole  on  the  state  of  the  Union,  and 
having  under  consideration  the  bill  (H.  R.  8189)  to  amend  an  act  entitled 
"An  act  to  aid  in  the  construction  of  a  railroad  and  telegraph  line  from  the 
Missouri  River  to  the  Pacific  Ocean,  and  to  secure  to  the  Government  the  use 
of  the  same  for  postal,  military,  and  other  purposes,"  approved  July  1, 1862; 
also  to  amend  an  act  approved  July  2, 1864,  and  also  an  act  approved  ilay  7 , 
1878,  both  in  amendment  of  said  first-mentioned  act.  and  other  acts  amenda- 
tory thereof  and  supplemental  thereto,  and  to  provide  for  the  settlement  of 
claims  growing  out  of  the  issue  of  bonds  to  aid  in  the  construction  of  certain 
railroads,  and  to  secure  the  payment  of  all  indebtedness  to  the  United  States 
of  certain  companies  therein  mentioned — 

Mr.  McLACHLAN  said : 

Mr.  CHAIRMAN:  In  the  brief  space  allowed  me  for  the  discussion 
of  this  bill  there  is  not  time  to  refer  but  briefly  to  the  history  of 
the  railroads  under  consideration.  Under  the  law  of  1862  the 
right  of  way  was  granted  these  railroads,  12,600  acres  of  land  given 
for  every  mile  to  be  built,  and  subsidy  bonds  issued  at  the  rate  of 
$16,000,  $32,000,  and  $48,000  per  mile,  according  to  the  character 
of  the  country  through  which  the  roads  were  to  be  built.  These 
bonds  were  to  constitute  a  first-mortgage  lien  upon  the  property 
and  were  to  be  repaid  in  thirty  years. 

This  was  a  princely  donation,  but  the  originators  realized  that 
they  could  do  better,  and  took  no  active  steps  for  two  years,  when 
the  land  grant  was  doubled,  the  lien  of  the  Government  subordi- 
nated to  a  second  place,  and  a  first  mortgage  allowed  to  be  placed 
upon  the  property  equal  to  the  original  grant  of  subsidy  bonds, 
amounting  to  about  $64,000,000. 

Then  the  gentlemen  comprising  the  original  projectors  of  this 
scheme,  whose  combined  capital  was  insignificant,  built  the  Cen- 
tral Pacific  for  $58.000,000,  capitalized  it  at  $189,000,000,  and  di- 
vided the  profits  and  Government  subsidy  among  themselves.  The 
Union  Pacific  was  manipulated  in  a  like  manner  through  the  Credit 
Mobilier.  and  as  a  result  $324,000,000  was  paid  to  stockholders  of 
the  Pacific  companies.  In  addition  to  the  $64,613,000  of  bonds  re- 
ceived, there  were  31,900,000  acres  of  land  granted.  But  notwith- 
standing these  princely  fortunes  accumulated  by  reason  of  the 
fabulous  liberality  of  the  United  States  Government,  from  the 
very  inception  of  the  enterprise  there  seems  to  have  been  a  steady 
design  on  the  part  of  those  who  had  grown  rich  by  this  liberality 
to  prevent  the  Government  from  ever  realizing  anything  upon  the 
advances  it  had  made  or  the  obligations  it  had  assumed.  From 
being  the  lessors  of  the  Southern  Pacific  Railroad  lines  in  Cali- 
fornia, New  Mexico,  and  Arizona,  the  Central  Pacific  was  placed 
under  control  of  the  latter  company  and  its  earnings  practically 
limited  to  a  2  per  cent  guaranty. 

2533  3 


The  roads  were  completed  on  May  10, 1869,  and  the  Government 
delivered  the  last  of  the  bonds.  Five  years  later,  when  the  rail- 
road companies  were  asked  to  account  for  the  5  per  cent  of  their 
earnings  provided  by  law  to  be  paid  the  United  States,  they  denied 
that  the  roads  were  completed.  This  point  was  decided  against 
them  by  the  United  States  Supreme  Court,  and  they  then  insisted 
that  there  were  no  earnings,  because  they  had  been  expended  in 
building  branch  lines  upon  which  the  Government  had  no  legal 
claim.  They  denied  the  rights  of  the  United  States  to  a  lien  on 
the  terminals  and  the  Omaha  bridge,  and  these  questions  are  now 
pending  in  court.  Both  companies  brought  exorbitant  charges 
against  the  Government  for  carrying  mail  and  troops,  and  these 
were  disallowed  by  the  Court  of  Claims.  They  denied  the  right 
of  the  Government  directors  to  meet  with  the  directors  of  the 
Union  Pacific  Railroad  Company.  The  Union  Pacific,  with  an 
original  mileage  of  1,821.86  miles,  now  has  7,672.09,  the  difference 
being  built  out  of  the  profits  of  the  original  grant,  but  upon  which 
the  Government  has  now  no  legal  lien. 

These  railroad  companies  went  openly  into  politics  and  put  out 
railroad  tickets  in  the  Western  States.  So  notorious  did  this 
become  that  when  the  Credit  Mobilier  scandal  was  exposed  but 
little  surprise  was'  manifested.  Then  came  the  Wilson  investiga- 
tion of  1873;  and  the  reports  of  that  committee  present  a. most 
astounding  state  of  affairs.  Then  the  Thurman  Act  of  1878  was 
passed,  requiring  the  roads  to  pay  in  all  of  their  earnings  from  trans- 
portation of  mail,  troops,  munitions  of  war,  and  25  per  cent  of  their 
net  earnings,  which  constituted  a  sinking  fund.  The  railroad  com- 
panies at  once  tested  the  constitutionality  of  this  law.  It  was  sus- 
tained by  the  United  States  Supreme  Court,  and  suddenly,  in  1880, 
seventeen  years  before  the  debt  became  due,  the  railroad  companies 
started  an  active  effort  to  have  their  indebtedness  to  the  Govern- 
ment funded.  There  had  been  no  intimation  of  insolvency  prior 
to  that  time  by  either  company.  Their  stock  ranked  high  in  the 
market;  dividends  were  paid  with  clock-like  regularity,  but  sud- 
denly it  developed  that  they  were  "  about  to  become  insolvent," 
according  to  their  own  claims. 

In  1887  another  commission  reported,  and  this  report,  as  in  case 
of  the  Wilson  committee,  charged  gross  frauds  from  the  inception 
of  these  companies.  Acting  upon  these  reports,  the  Fiftieth  Con- 
gress passed  a  law  authorizing  the  Executive  and  Attorney-Gen- 
eral to  proceed  to  foreclosure  in  case  the  indebtedness  was  not 
paid.  Every  Congress  since  that  time  has  been  besieged  by  these 
companies.  Is  their  past  record  such  as  to  inspire  confidence  in 
the  stability  of  any  agreement  they  might  make  in  the  future? 

The  first  thing  that  a  prudent  man  does  when  entering  upon  a 
contract  is  to  put  in  figures  just  what  he  obligates  himself  to  pay 
and  what  the  other  party  is  obligated  to  pay  or  do. 

It  is  a  well-known  fact  that  United  States  bonds  can  not  be 
floated  bearing  a  less  rate  of  interest  than  3£  per  cent. 

This  bill  provides  that  the  Central  and  Union  Pacific  shall  pay 
2  per  cent  interest  on  the  uncanceled  portions  of  their  debts  to  the 
Government.  In  addition  they  are  to  pay ' '  installments  of  princi- 
pal "  aggregating  $730,000  a  year  for  the  first  ten  years,  $1,000,000 
a  year  for  the  next  ten,  and  $1,500,000  annually  thereafter  until 
the  debt  is  "paid." 

The  principal  of  the  debts  amounted  on  the  1st  of  the  present 
month  to  about  $121,140,942.39. 

2593 


The  fimding  bill  provides  for  certain  offsets  which  reduce  this 
figure  slightly. 

The  first  annual  payment  made  by  the  Central  and  Union  Pacific 
will  ba  $2,422,818.84  for  interest  and  §730,000  for  "installment,"  or 
$3,152,818.84  in  all.  After  that  the  railroads  will  pay  less  and  less 
for  ten  years,  when  they  \7ill  be  paying  for  interest  and  install- 
ment combined  $3,021,418.84,  or  2.5  per  cent. 

During  all  this  time  the  Government  will  be  paying  its  own 
creditors  on  an  equal  amount  of  debt  $4,239,932.98  a  year  in 
interest,  none  of  which  will  be  counted  as  an  installment  on  the 
principal.  In  this  period  of  ten  years  the  railroads  will  have 
reduced  the  principal  of  their  debt  by  $7,300,000,  and  yet  they  will 
lack  $11,528,141.43  of  having  paid  the  Government  as  much  for 
interest  and  pi'iucipal  combined  as  it  will  have  paid  its  creditors 
for  interest  alone  on  the  money  it  has  been  obliged  to  borrow  by 
reason  of  the  nonpayment  of  this  railroad  debt. 

The  next  year  the ' '  installment "  will  increase  to  a  million  dollars, 
and  that  will  bring  up  the  total  railroad  payments  for  the  year, 
including  interest,  to  $3,276.818.84,  or  2.7  per  cent  on  the  original 
debt. 

From  this  point  thev  will  decline  for  ten  years  more,  until  in 
the  tenth  year  they  will  amount  to  $3,096,818.84,  or  2.56  per  cent. 
In  this  period  of  ten  years  the  total  railroad  payments  for  interest 
and  principal  combined  will  lack  $10,531,141.43  of  meeting  the 
cost  of  similar  loan  to  the  Government  for  interest  alone. 

The  railroads  will  then  owe  the  Government  $103,840,942.39, 
which  they  will  pay  off  at  the  rate  of  $1,500,000  a  year  until  it  is 
all  extinguished. 

The  first  year  this  "installment,"  plus  interest  at  2  per  cent, 
will  amount  to  $3,576,818.84,  which  will  be  equivalent  to  2.95  per 
cent  on  the  original  debt.  That  is  the  largest  payment  that  will 
ever  be  made  in  any  one  year  during  the  whole  course  of  the  liqui- 
dation, and  it  will  fall  short  by  $663,114.14  of  the  amount  the 
Government  will  have  to  pay  its  creditors  for  interest  alone  dur- 
ing every  one  of  the  eighty-nine  years  the  process  will  last,  and 
every  year  thereafter  until  it  chooses  to  pay  the  principal  in  full. 

These  installments  will  clear  off  the  entire  debt  in  about  sixty- 
nine  years  more,  making  about  eighty-nine  years  from  the  begin- 
ning. 

The  last  full  year's  payment  for  interest  and  installments  com- 
bined will  amount  to  $1,540,000,  or  1.27  par  cent  on  the  original 
debt,  and  about  $2,700,000  less  than  the  Government  charges  for 
interest  alone  on  a  similar  debt. 

The  state  of  the  account  at  the  end  of  the  process  will  be  this: 
In  the  first  ten  years  the  Government  will  have  paid  its  creditors 
in  interest  on  the  money  it  has  been  obliged  to  borrow  by  reason  of 
the  nonpayment  of  this  railroad  debt  $11,528,141.43  more  than  it 
will  have  received  from  the  roads  for  interest  and  principal  com- 
bined. In  the  next  ten  years  its  excess  of  payments  will  reach 
$10,531,141.43. 

In  the  remaining  sixty-nine  years  it  will  pay  $117,025,125.64 more 
than  it  will  receive.  By  the  time  the  railroads  have ' '  extinguished  " 
their  debt  their  aggregate  payments  to  the  Government  for  inter- 
est and  principal  combined  will  lack  $139,084.408.50  of  the  Govern- 
ment's payments  for  interest  alone,  taking  .no  accoimt  for  interest 
on  interest.  And  while  the  railroads  will  then  be  free  of  the  debt, 
the  Government  will  still  owe  the  whole  original  principal,  amount- 
2502 


6 

ing  to  $121 ,140,943.  Its  total  loss  from  the  funding  operation ,  there- 
fore, will  be  $260,225,350.  The  total  amount  of  the  payments  for 
principal  and  interest  under  the  provisions  of  this  bill  will  amount 
to  about  2.3  per  cent  on  the  principal  debt  for  eighty-nine  years, 
and  at  this  rate  would  leave  the  principal  debt  still  unpaid  and 
due  the  Government. 

This  is  not  a  proposition  for  the  railroads  to  pay  the  United 
States  Government,  but  purely  and  solely  for  the  United  States 
to  present  it  with  millions  of  dollars  more  than  they  have  already 
received. 

There  is  not  a  railroad  company  in  the  United  States  that  would 
not  pay  liberally  to  have  its  indebtedness  funded  for  ninety  years 
at  2  per  cent.  No  such  proposition  was  ever  made  before,  and  I 
venture  to  say  that  no  such  proposition  would  ever  be  entertained 
for  a  moment  by  any  money  lenders  in  the  world  under  similar 
circumstances. 

That  it  should  have  received  the  indorsement  of  the  committee 
is  astounding,  and  I  can  not  think  that  thej'  ever  carried  the  fig- 
ures out  and  learned  what  the  proposition  actually  meant. 

This  bill  in  effect  provides  that  the  companies  shall  be  given  a 
clear  receipt  for  all  they  have  obligated  themselves  to  pay,  and.  in 
addition  to  that,  be  presented  with  a  further  subsidy. 

It  has  been  well  stated  in  one  of  the  minority  reports  that  it  is 
not  shown  this  is  the  best  we  can  do,  and  on  the  face  of  the  propo- 
sition it  is  evident  that  it  is  the  worst  we  could  do. 

The  bill  provides  that  the  companies  shall  double  the  amount 
of  the  present  first-mortgage  indebtedness,  and,  in  return  for  this 
reducing  the  present  value  of  the  security  to  the  Government, 
collateral  lines  are  included,  all  of  which  are  heavily  mortgaged. 
Are  they  worth  the  amounts  they  are  already  mortgaged  for 
Are  they  not  already  mortgaged  for  more  than  they  are  worth 
We  have  no  information  upon  that  subject.  In  fact,  the  bill 
shows  that  the  committee  possesses  no  information.  It  in  terms 
makes  a  contract  in  ignorance  of  the  facts  upon  which  it  rests, 
and  makes  it  the  duty  of  the  Secretary  of  the  Treasury  to  ascer- 
tain the  facts  after  the  contract  is  made.  He  is  not  empowered 
to  change  the  contract,  should  the  facts  show  it  to  be  a  bad  one. 
It  makes  the  contract  absolutely  without  the  facts,  and  calls  upon 
the  Secretary  of  the  Treasury  to  ascertain  them  afterwards.  Can 
such  a  dealing  in  the  dark  be  justified? 

But  it  is  said,  and  emphasis  given  to  the  statement  on  the  floor 
of  this  House,  that  something  must  be  done,  and  the  time  is  short 
in  which  to  do  it.  The  question  must  be  settled.  Why  must 
something  be  done?  The  time  is  short  in  which  to  do  what?  Has 
not  the  question  been  settled? 

The  United  States  Government  at  enormous  expense  formed  a 
commission  composed  of  three  of  the  ablest  lawyers  in  America. 
They  heard  testimony  which  fills  ten  immense  volumes.  They 
rendered  their  decision.  That  decision  was  ratified  nine  years 
ago  by  the  Congress  of  the  United  States  with  the  evidence  before 
it,  and  after  long,  exhaustive  debates  upon  every  phase  of  the  ques- 
tion. Congress  acted  and  passed  a  law. 

Under  the  act  of  March  3,  188T,  the  President  is  authorized  to 
direct  the  Secretary  of  the  Treasury  to  ''redeem  or  otherwise 
clear  off  such  (any)  paramount  lien,  mortgage,  or  other  incuin- 
brance  "  on  these  roads  prior  to  that  of  the  United  States  "by  pay- 
ing the  sums  lawfully  due  in  respect  thereof  out  of  the  Treasury." 
2392 


He  is  also  authorized  to  direct  the  Attorney-General  "to  take  all 
such  steps  and  proceedings  in  the  courts  and  otherwise  that  shall 
be  needful  to  redeem  such  lien,  mortgage,  or  other  incumbrance, 
and  to  protect  and  defend  the  rights  and  interests  of  the  United 
States  in  respect  of  the  matter  in  this  section  mentioned,  and  to 
take  steps  to  foreclose  any  mortgage  or  liens  of  the  United  States 
on  any  such  railroad  property." 

Congress  has  declared  that  the  matter  should  be  settled  in  the 
only  branch  of  Government  where  all  of  the  law  and  equity  can  be 
adjusted — the  judicial.  Who  has  ever  objected  to  this  very  proper 
mode  of  collecting  this  indebtedness,  the  only  one  which  a  private 
individual  or  a  corporation  would  ever  think  of  adopting  through 
their  attorneys?  Have  there  been  any  protests,  any  demands 
upon  Congress  that  it  should  independently  of  the  courts  and  the 
duly  constituted  legal  authorities  of  the  United  States  take  this 
matter  out  of  their  hands?  Have  the  people  expressed  a  lack  of 
confidence  in  the  Executive  and  the  Attorney-Genei'al?  With 
the  plenary  power  to  make  such  settlement  as  will  best  subserve 
the  interests  of  the  people  given  by  this  law.  has  anyone  accused 
the  Attorney-General  of  inconapetency  to  fulfill  the  duty  imposed 
upon  him?  It  is  a  matter  of  personal  knowledge  to  every  member 
of  this  House  that  there  have  been  no  such  protests  from  70,000,- 
000  people.  They  are  not  only  satisfied  to  let  the  law  take  its 
course,  but  through  the  columns  of  the  press,  in  political  conven- 
tions, in  mass  meetings,  and  by  petitions  they  have  demanded 
that  the  law  take  its  course.  For  whom  is  the  time  short?  Not 
for  the  Government,  for  this  is  not  a  proposition  to  effect  a  set- 
tlement, but  to  extend  the  time  for  a  century  and  to  burden  an 
already  bankrupt  Treasury  with  great  additional  obligations. 
Whose  interests  are  in  jeopardy?  To  say  that  those  of  the  Gov- 
ernment are  is  a  reflection  upon  the  Executive  and  the  Attorney- 
General.  Whence,  then,  comes  this  clamor?  From  the  debtors 
only.  Usually  it  is  the  creditors  who  insist  that  a  debt  shall  be 
adjusted,  but  every  session  of  Congress  since  that  which  placed 
the  whole  matter  in  the  law  department,  \v  here  it  properly  belongs, 
Congress  has  been  besieged  by  emissaries  of  these  railroad  com- 
panies, claiming  that  the  people's  interests  demanded  that  a  set- 
tlement be  made  of  a  debt  that  was  not  due.  Are  they  afraid  the 
courts  will  do  justice,  and  do  they  believe  they  can  influence  Con- 
gress to  prevent  justice  being  done?  The  proposition  is  an  insult 
to  every  member  of  this  body,  but  it  is  the  only  legitimate  expla- 
nation of  the  constant  presence  of  the  Pacific  railroad  lobbies. 

In  this  case  the  Government  is  the  creditor,  the  railroad  compa- 
nies the  debtors.  Nine  years  ago  the  creditor  placed  this  entire 
matter  in  the  hands  of  its  attorneys,  with  full  power  to  protect  the 
interest  of  the  Government,  and  the  debtors  were  notified  of  that 
fact.  Ever  since  that  time  the  debtors  have  been  importuning  the 
creditor  to  take  the  matter  out  of  the  hands  of  its  attorney  with- 
out even  consulting  him  and  settle  it  without  the  assistance  of 
legal  counsel.  No  course  of  that  kind  would  ever  be  justified  in 
case  of  an  individual  or  a  private  corporation,  and  should  not  be  in 
case  of  the  Government.  What  will  be  the  result  if  Congress  fails 
to  act?  Why,  there  will  be  a  full  hearing  in  a  court  of  competent 
jurisdiction  and  a  decree  rendered  in  accordance  with  the  law  and 
facts,  protecting  so  far  as  possible  the  interests  of  all  concerned. 
Is  such  a  course  a  calamity  calling  for  the  hasty  interposition  of 
Congress? 

2592 


8 

I  use  the  word  "hasty"  intentionally,  for  it  would  be  hasty,  to 
use  the  mildest  term,  for  this  Congress,  without  the  assistance  of 
a  judicial  commission  and  without  exhaustive  sworn  testimony,  to 
overrule  the  decision  of  the  Fiftieth  Congress,  which  had  the  ben- 
efit of  those  aids,  and  that,  too,  when  no  one  except  the  railroad 
companies  objects  to  the  decision  then  reached.  What  will  be 
the  result  if  we  do  pass  this  bill?  We  must  receive  less  than  we 
pay  out,  relinquish  even  what  control  we  have  of  these  compa- 
nies, and  tax  posterity  for  the  next  ninety  years — a  monument  of 
folly!  Is  this  result  so  desirable  that  we  will  be  chargeable  with 
neglect  of  duty  if  we  allow  the  law  to  take  its  course  and  thus  fail 
to  provide  this  legacy  of  debt  to  our  children  and  our  children's 
children? 

But  this  has  been  likened  unto  a  composition  with  creditors  by 
which  time  is  extended.  It  shows  no  such  phase  as  presented  in 
this  Congress.  Robbed  of  all  superfluous  verbiage,  it  is  simply  a 
proposition  that  one  creditor — the  Government — pay  the  debts  of 
the  other  creditors  at  100  cents  on  the  dollar,  reduce  the  rate  of 
interest  more  than  one-third  below  actual  cost  of  carrying,  turn 
tne  property  over  to  the  debtors,  allow  them  to  retain  all  of  the 
profits,  and  their  remote  descendants  will  pay  the  principal  in 
case  they  feel  so  disposed.  Any  court  in  the  United  States  would 
appoint  a  guardian  over  any  man  who  would  accept  such  a  prop- 
osition, and  treat  him  as  non  compos  mentis  upon  the  applica- 
tion of  any  relative.  It  has  not  even  the  advantage  of  being 
ingenious. 

It  is  objected  that  only  one-seventh  of  these  systems  are  em- 
braced in  the  main  lines  upon  which  the  Government  liens  rest, 
and  that  with  these  branches  in  the  hands  of  the  companies  the 
main  line  can  not  do  business.  While  I  am  not  inclined  to  dispute 
that  the  tail  may  wag  the  dog,  yet  if  the  tail  is  cut  off  I  do  not 
think  the  dog  will  die  and  the  tail  continue  to  wag.  As  these 
branches  are  feeders  to  the  main  lines,  they  can  only  be  operated 
in  connection  with  the  main  lines,  not  in  competition  with  them. 
The  branches  may  represent  more  mileage  and  be  more  profitable 
than  the  main  lines,  but  the  former  can  not  be  operated  at  all 
without  the  latter,  and  as  the  more  they  carry  the  more  profitable 
they  are,  they  will  carry  just  as  much  to  the  main  lines  if  they 
pass  out  of  the  hands  of  the  owners  as  they  do  now.  At  any  rate, 
the  insolence  of  the  argument  is  too  great  for  it  to  be  accorded 
much  respect.  The  railroad  companies  say:  "  You  advanced  the 
money  and  we  built  the  lines.  Out  of  the  profits  we  bought  and 
built  branch  lines  that  belong  to  us  and  not  to  you.  Our  roads 
that  we  bought  with  the  profits  of  your  roads  are  more  profitable 
than  your  roads;  therefore,  as  you  can  not  do  anything  with  your 
roads  without  ours,  you  ought  to  give  them  to  us." 

The  prospect  that  the  Government  may  have  to  buy  in  the  roads 
frightens  some  people.  It  is  not  necessary  that  the  Government 
should  buy  them  in  if  that  course  does  not  appear  desirable.  Nor 
will  the  court  confirm  a  sale  where  the  price  bid  is  grossly  inade- 
quate. Take  judgment  as  in  any  other  foreclosure  suit,  and  let 
the  railroad  be  run  by  receivers  until  an  adequate  bid  is  received. 
The  fact  that  his  client  did  not  want  to  buy  a  railroad  would  not 
deter  a  lawyer  from  proceeding  to  collect  a  debt  against  one. 

The  "bogy  man"  of  the  Government  ownership  of  railroads  has 
seemingly  been  conjured  up  by  the  railroad  people  to  frighten 
timid  legislators,  and  every  time  it  is  mentioned  there  are  loud 
cries  of  ' '  Paternalism ! "  It  has  not  usually  been  supposed  th  at  the 


Governments  of  France,  Germany,  Belgium,  and  Bavaria  were 
paternal.  These  are  the  prominent  countries  that  have  tried  the 
Government  ownership  of  railroads.  In  all  of  them  it  has  been  a 
success.  There  have  been  no  failures  to  record  against  the  system 
in  Europe.  Charles  Francis  Adams,  jr.,  a  former  Government 
director  of  the  Union  Pacific  Railroad,  and  subsequently  president 
of  that  company,  wrote  a  treatise  against  the  Government  owner- 
ship of  railroads,  taking  the  ground  that  an  entirely  different 
state  of  affairs  existed  in  the  United  States  from  that  found  in 
Europe.  But  he  was  honest  enough  to  make  the  following  state- 
ments. I  quote  from  his  book: 

To  satisfy  everyone  always  is  a  result  not  likely  to  be  attained  under  any  sys 
tern  or  in  any  country.  Meanwhile  it  may,  with  tolerable  safety,  be  asserted 
that  the  Belgium  system  is  as  satisfactory  to  the  people  of  Belgium  as  the 
nature  of  things  human  permits  that  it  should  be.  Certainly  the  public  feel- 
ing points  very  distinctly  toward  the  acquisition  of  the  remaining  lines  of 
the  system  by  the  Government,  while  the  sale  of  the  Government  lines  to 
promote  corporations  has  never  been  urged  by  any  considerable  party. 
Financially  the  undertaking  has  proved  a  decided  success. 

As  to  France  he  says: 

Though  not  especially  enterprising,  the  companies  are,  as  a  rale,  solvent' 
impartial,  and  reliable.  Indeed,  those  managing  them  look  with  simple 
astonishment  on  the  wild  fluctuations  in  the  railroad  tariffs  incident  to  the 
American  method  of  operation,  and  they  do  not  hesitate  to  say  that  if  any 
similar  outrages  were  perpetrated  on  the  French  people  and  business  public 
by  them  the  question  of  the  state  ownership  of  railroads  would  immediately 
assume  a  new  shape.  Such  proceedings  would  not  be  tolerated. 

I  do  not  intend  to  discuss  at  length  the  prog  and  cons  of  the 
question  of  Government  ownership  or  operation  of  railroads,  or 
to  take  any  grotmd  upon  that  question  as  an  independent  proposi- 
tion. Bnt  under  the  existing  conditions  of  these  Pacific  railroads 
and  their  relations  to  this  Government,  rather  than  pass  this  bill 
I  would  prefer  to  see  this  Government  try  the  experiment  of  the 
Federal  ownership  and  control  of  these  roads,  charging  the  people 
only  sufficient  for  freight  and  passengers  to  pay  the  running  ex- 
penses, keeping  the  roadbed  in  repair,  and  paying  the  interest  on 
whatever  debts  might  exist  against  them,  together  with  a  reason- 
able sinking  fund  to  pay  off  the  existing  debt,  and  giving  the  peo- 
ple the  benefit  of  the  lowest  possible  rates. 

The  whole  nation  is  clamoring  to-day  for  the  building  of  the 
Nicaraguan  Canal  under  the  control  and  management  of  the 
Government.  Upon  the  same  theory  and  under  the  existing  con- 
ditions of  these  roads,  I  would  like  to  see  the  experiment  tried  of 
this  Government  owning  and  controlling  one  transcontinental 
railroad  from  the  Pacific  to  the  Atlantic  Seaboard.  Such  a  rail- 
road would  tend  to  regulate  the  rates  of  all  transcontinental  rail- 
roads, and  might  successfully  solve  one  of  the  most  difficult  and 
complex  questions  that  now  confront  the  American  people. 

To  the  extent  that  the  right  of  way  ia  conferred  upon  railroad 
corporations  it  is  a  delegation  of  sovereignty,  and  such  delegations 
are  always  dangerous.  They  are  not  amenable  to  all  the  laws  con- 
cerning corporations.  The  courts  make  them  a  class  unto  them- 
selves on  the  ground  that  they  are  quasi  public  corporations.  It 
must  be  admitted  that  this  quasi  public  character  has  operated  in 
favor  of  the  railroad  companies  and  not  of  the  public. 

So  universal  has  this  idea  become  that  railroads  are  operated 

against  the  interests  of  the  people  that  it  is  notorious  that  in 

the  courts  American  juries  will  mulct  railroad  companies  in  the 

heaviest  damages  possible.    Every  attorney  who  represents  a  rail- 

2502 


10 

road  company  has  had  frequent  cause  to  complain  of  the  preju- 
dice existing  against  that  class  of  corporations.  The  American 
people  love  justice.  In  no  country  do  juries  bring  in  as  fair  ver- 
dicts as  a  rule  as  in  the  United  States.  The  love  of  Americans 
for  fair  play  is  proverbial.  Bankers,  manufacturers,  merchants, 
are  all  accorded  justice  by  juries,  and  the  fact  that  railroad  com- 

Ranies  alone  encounter  as  an  obstacle  to  the  obtaining  of  their 
?gal  rights  a  universal  prejudice  is  proof  conclusive  that  the 
people  have  suffered  at  their  hands.  And  among  such  offenders 
the  Pacific  railroad  companies  have  never  been  backward.  They 
have  oppressed  the  farmers  by  extortionate  charges,  by  insuffi- 
cient service,  and  by  granting  low  rates  to  favored  shippers  until 
the  fertile  country  through  which  their  lines  pass  is  almost 
ruined.  The  farms  are  mortgaged,  corn  is  burned  for  fuel,  and 
wheat  and  fruit  rot  because  they  will  not  bring  a  price  that  will 
pay  for  shipment  to  market.  That  I  am  teJling  the  truth  will  be 
borne  out  by  every  man  familiar  with  our  Western  States.  This 
has  caused,  more  than  everything  else  combined,  the  spirit  of 
unrest  that  is  found  throughout  that  section.  Throughout  the 
States  where  these  railroad  lines  pass  there  has  been  for  years  a 
general  demand  that  the  Government  control.  Now  Congress  has 
an  opportunity,  without  incurring  a  dollar  of  extra  expense,  to 
allow  the  experiment  to  be  tried  in  the  very  section  where  the 
demand  for  it  is  strongest. 

It  would  in  the  past  have  saved  the  $324,000, 000  paid  in  dividends 
by  these  same  roads,  even  though  they  had  not  been  conducted 
more  honestly  than  these  companies  operated  the  lines.  That 
saving  to  the  producers  along  these  roads  would  have  rendered 
them  independent  and  prosperous.  Their  i'arnis  would  not  now 
be  so  heavily  mortgaged  and  they  be  suffering  for  the  necessities 
of  life.  If  the  experiment  proved  a  failure,  the  railroads  could  be 
sold.  It  will  cost  nothing  to  try  it,  and  it  will  settle  one  way  or 
other  this  widespread  popular  demand.  It  will  not  do  to  predict 
a  failure  ex  cathedra.  It  is  successful  in  Europe  and  has  never 
been  tried  in  the  United  .States.  It  is  true  that  Illinois,  Indiana, 
Massachusetts,  Pennsylvania,  and  Georgia  have  tried  it  in  a  very 
limited  way.  It  has  not  been  altogether  satisfactory  nor  alto- 
gether unsatisfactory,  but  there  are  difficulties  in  the  way  of  a 
State  operating  a  railroad  that  do  not  exist  as  against  the  United 
States,  for  the  States  can  not  regulate  shipments  from  or  into 
other  States. 

In  this  case  the  people  furnished  the  money,  and  I  believe  they 
have  a  right  to  demand  that  they,  through  their  Government, 
shall  have  control  of  the  property,  at  least  till  this  debt  is  paid. 

I  therefore  oppose  any  funding  scheme,  believing  that  the 
Attorney-General  should  act  in  accordance  with  the  terms  of  the 
act  of  1887  and  buy  in  the  property  for  the  people. 

But  if  any  funding  bill  is  passed,  certainly  the  arrangement 
should  be  the  best  one  possible.  It  is  admitted  that  the  Union 
Pacific  can  afford  to  offer  better  terms  than  the  Central,  and  here 
is  what  Creed  Haymond,  attorney  of  the  latter  company,  stated 
his  company  could  do: 

The  company  could  without  any  difficult; ,  and  without  assuming  a  burden 
nearly  as  great  as  is  now  upon  it  for  interest,  pay  into,  the  United  States 
Treasury  four  millions  annually,  which  would  pay  off  the  last  dollar  of  this 
indebtedness  long  before  the  expiration  of  forty  years.  This  indebtedness 
could  be  made  to  constitute  a  mortgage  upon  the  property,  and  it  would  be 
a  first  mortgage  readily  available  to  the  Government  or  to  any  person  who 
desired  to  use  the  security. 
2592 


11 

If  Congress  is  to  act  at  all,  it  should  only  do  so  after  a  thorough 
examination  of  all  the  facts  and  the  law  and  equities  of  the  case. 
We  have  nothing  before  us  but  the  reports  of  the  committee,  of 
which  there  are  three,  all  of  them  stating  the  facts  differently, 
and  the  bill  reported,  leaving  the  facts  for  the  Secretary  of  the 
Treasury  to  learn.  If  the  members  of  the  committee  who  heard 
the  evidence  can  not  agree  upon  a  statement  as  to  the  facts  sub- 
stantiated,  how  can  those  members  who  did  not  hear  the  evidence 
base  any  conclusion  upon  these  reports?  We  know  that  the  Cen- 
tral and  Union  Pacific  railroad  companies  will  owe  the  United 
States  Government  some  money — as  to  how  much,  we  have  differ- 
ent statements.  We  know  that  no  effort  has  been  made  by  the 
law  officers  to  collect  it.  We  are  informed  by  the  debtors  that 
they  are  insolvent,  but  we  do  not  know  that  this  is  true,  while  we 
do  know  that  they  have  not  always  been  truthful  in  the  past. 
We  have  no  schedule  of  assets  and  liabilities  that  would  be  ac- 
cepted by  any  court  as  such,  or  acted  upon  in  any  creditor's 
meeting. 

We  know  from  the  reports  of  the  Pacific  railroads  commission 
in  1887,  the  Wilson  commission  in  1873,  the  reports  of  the  Govern- 
ment directors  of  the  Pacific  railroads  each  year  for  the  past 
twenty  years,  and  the  messages  of  Presidents  Harrison  and  Cleve- 
land, that  extensive  frauds  have  been  charged;  that  it  is  claimed 
there  have  been  diversions  of  funds;  that  immense  sums  have 
been  paid  to  stockholders,  and  that  the  companies  are  charged 
with  gross  violations  of  the  provisions  of  their  charters.  We  are 
told  that  there  is  not  enough  property  to  pay  the  first-mortgage 
bondholders  and  the  United  States,  too,  but  there  is  no  sworn 
statement  or  appraisal  of  the  property.  We  have  no  evidence 
that  there  is  not  enough,  except  the  statement  of  the  debtors  them- 
selves. Taking  for  granted  that  this  is  true;  going  further,  and 
taking  it  for  granted  that  there  is  not  more  than  enough  property 
to  pay  the  first-mortgage  liens,  as  a  matter  of  law,  there  are  still 
some  important  questions  to  consider.  What  is  the  value  of  the 
equities?  That  is  a  matter  a  statute-making  body  can  not  inquire 
into  properly  or  reach.  It  can  be  determined  only  by  the  judiciary. 

It  is  a  well-settled  principle  of  law  that  the  statute  of  limitations 
does  not  run  against  the  Government;  hence  a  judicial  inquiry 
would  probe  the  frauds,  if  any  existed,  and  every  commission 
ever  appointed  has  charged  that  extensive  frauds  were  perpetrated. 
These  frauds  must  have  been  to  the  injury  of  the  United  States, 
and  the  courts  would  follow  all  funds  diverted  by  fraud  and  give 
judgment  for  their  recovery.  Pass  this  bill  and  we  condone  these 
alleged  frauds  without  a  legal  investigation,  cut  off  the  possibility 
of  reaching  them  in  the  future,  give  the  railroads  a  clean  record 
up  to  the  date  of  its  passage,  and  hereafter  we  must  be  governed 
by  the  provisions  of  this  bill  alone.  These  companies  had  prac- 
tically no  money  except  that  furnished  by  the  United  States.  Does 
this  create  a  resulting  trust  in  favor  of  the  United  States  in  all 
property  purchased  with  money  belonging  to  the  United  States? 
It  is  a  well-settled  principle  of  equity  that  where  property  is  bought 
with  funds  of  another,  the  title  being  taken  in  the  name  of  the 
purchaser,  the  owner  of  the  funds  has  a  resulting  trust  in  the  prop- 
erty so  purchased.  Is  this  a  case  within  that  rule?  If  so,  every 
dollar  of  the  Government  money  can  be  recovered.  Has  there 
ever  been  an  attempt  made  to  bring  this  case  within  this  well- 
known  rule  of  equity?  Never. 

An  attempt  was  made  to  hold  the  stockholders  of  the  Central 
2593 


12 

Pacific  liable  under  the  California  statute.  This  failed,  the  United 
States  Supreme  Court  holding  that  they  were  not  liable  under 
that  statute  because  it  was  a  Federal  and  not  a  State  corporation. 
That  being  true,  the  liability  of  the  stockholders  is  under  the  Fed- 
eral law.  What  is  that  law?  The  statutes  being  silent,  would 
not  the  common  law  prevail,  and  the  stockholders  be  liable  under 
the  common  law?  If  the  common-law  liability  coxild  be  enforced, 
every  dollar  of  the  indebtedness  to  the  United  States  could  be  re- 
covered. Has  there  been  any  attempt  to  enforce  it?  None  what- 
ever. Should  the  courts  hold  that  either  of  these  principles 
applied,  the  debt  could  be  collected  in  full,  even  though  there  was 
not  a  dollar's  worth  of  property  available  under  direct  legal  pro- 
ceedings. 

In  connection  with  foreclosure  proceedings,  a  bill  of  discovery 
could  be  filed,  setting  forth  the  allegations  of  fraud  that  have  been 
made.  Congressional  committees  have  tried  in  vain  to  get  the 
books,  or  information  as  to  what  they  contained.  If  a  subpoena 
duces  tecurn  is  not  powerful  enough  to  bring  them  forth,  a  writ 
of  sequestration,  coupled  with  the  authority  of  the  courts  to 
imprison  for  contempt,  would  secure  the  evidence.  The  hearing 
before  Congressional  committees  has  largely  been  ex  parte.  We 
have  only  the  evidence  of  the  defendants.  We  know  nothing 
about  the  strength  of  our  own  side  of  the  case.  There  is  not  a 
lawyer  in  this  body  who  would  risk  his  legal  reputation  by  writing 
a  legal  opinion  upon  the  intricate  legal  and  equitable  questions 
involved  with  the  confused  and  conflicting  statements  of  facts 
before  us  for  consideration.  According  to  the  provisions  of  this 
bill,  even  the  amount  of  liabilities  to  be  assumed  is  left  for  the 
Secretary  of  the  Treasury  to  ascertain  after  the  bill  has  passed. 

If  the  decision  of  the  court  was  against  the  United  States  on  all 
of  these  points,  no  fraud  was  proved,  no  funds  had  been  diverted, 
and  the  stockholders  were  not  liable,  we  would  be  in  no  worse 
position  than  we  are  now.  We  could  still  fund  the  debt  if  thought 
best.  It  may  be  feared  that  the  present  foreclosure  suits  would 
be  pushed  and  not  await  the  action  of  Congress.  Making  the 
parties  to  the  present  suits  party  defendants  will  hold  them  in 
court;  and  if  the  judgment  be  adverse  to  the  United  States,  and 
the  Government  does  not  want  to  purchase  the  property,  and  the 
first-mortgage  bondholders  refuse  to  wait  until  Congress  acts, 
a  suit  for  the  annulment  of  the  charter,  for  which  there  is  ample 
grounds  if  reports  are  true,  will  bring  the  first-mortgage  bond- 
holders to  terms  at  once.  Let  us  have  a  judicial  determination  of 
the  facts,  a  schedule  of  assets  and  liabilities,  with  proper  appraise- 
ments, a  determination  of  the  questions  of  law  and  equity;  then 
we  will  have  information  upon  which  we  can  act  intelligently. 
Until  then,  theories  and  opinions  are  absolutely  valueless,  for  we 
know  nothing  about  the  case. 

Let  us  go  into  the  courts,  where  the  stockholders,  the  unsecured 
creditors,  the  bondholders,  the  Government,  all,  can  be  heard. 
Let  us  have  a  decision  upon  the  merits  of  the  case.  Let  us  probe 
the  charges  of  fraud  to  the  bottom.  Let  us  recover  the  funds  that 
have  been  diverted,  if  any.  Let  us  determine  whether  the  stock- 
holders, who  have  grown  enormously  wealthy,  can  not  be  made 
to  account  for  a  portion  of  their  dividends.  I  believe  we  will  col- 
lect all  of  our  money.  If  not,  we  will  be  in  no  worse  position  than 
we  are  now. 

It  is  evident  from  the  clamor  about  insolvency  these  debtors 
have  made,  and  their  desperate  efforts  to  effect  a  long-term  com- 


13 

promise  before  their  debt  is  due,  that  they  are  afraid  of  the  courts; 
but  the  United  States  has  nothing  to  fear  from  its  judiciary.  If, 
as  they  claim,  they  have  nothing  to  pay  with  as  corporations,  and 
are  not  individually  liable,  why  should  they  object  to  legal  inves- 
tigation? Is  it  purely  and  wholly  a  proposition  for  their  advan- 
tage, and  only  a  plan  to  induce  the  Government  to  pay  their  debts 
and  allow  them  to  continue  in  control  of  the  property?  If  it  is, 
Congress  has  no  right  to  consider  such  a  proposition  for  a  moment. 
If  not,  it  is  inexplicable  that  they  should  keep  up  an  expensive 
lobby  in  order  to  prevent  the  present  law  from  being  carried  out. 

While  I  am  opposed  to  this  funding  bill,  I  can  see  how  others 
might  be  earnestly  in  favor  of  funding  this  debt.  But  I  can  not 
see  how  any  member  of  this  House  can  favor  funding  at  a  rate  of 
interest  below  the  actual  cost  to  the  Government  of  carrying  the 
debt.  Nor  can  I  see  how  any  member  can  favor  taking  action 
until  the  courts  have  passed  upon  the  important  questions  in- 
volved, with  all  parties  in  interest  in  court.  When  that  is  done, 
the  conclusions  can  be  entered  upon  the  records  as  a  decree  of 
court,  all  creditors  and  parties  in  interest  would  be  bound  by  it, 
and  Congress  would  know  just  what  the  Government's  rights  are 
and  what  the  companies  could  afford  to  do.  I  believe  that  the 
strongest  friends  of  this  bill  will  vote  against  it  if  they  give  care- 
ful consideration  to  the  lack  of  definite  facts  and  of  judicial  inter- 
pretation upon  which  we  can  act. 

Are  we  justified  in  overruling  these  commissions  and  Con- 
gresses when  every  political  convention  and  every  mass  meeting 
of  citizens  that  has  acted  upon  the  subject  has  indorsed  what  they 
have  done?  Let  me  beg  of  the  members  of  this  House  to  remem- 
ber that  we  are  considering  the  question  of  collecting  a  debt.  It 
has  already  been  placed  in  the  hands  of  the  Attorney-General  for 
collection,  and  he  has  not  reported  that  it  is  uncollectible.  We 
dp  not  know  whether  or  not  the  holders  of  the  senior  liens  will 
bid  enough  to  enable  us  to  realize  something  upon  our  claims. 
We  do  not  know  whether  or  not  other  bidders  can  be  secured.  We 
only  knovy  that  if  we  do  not  resort  to  legal  proceedings  our  debt- 
ors, who,  it  is  claimed,  have  persistently  defrauded  us  in  the  past, 
agree  to  continue  in  control,  provided  we  pay  their  preferred 
creditors.  Two  Congresses  have  favored  compelling  the  collec- 
tion of  the  debt;  two  commissions  have  reported  against  both  the 
insolvency  and  good  faith  of  our  debtors;  three  Congresses  have 
refused  to  entertain  similar  offers  of  compromise  to  that  niaile 
now.  The  conduct  of  these  debtors  in  the  past  has  not  been  such 
as  to  command  our  confidence  that  they  will  carry  out  even  the 
liberal  provisions  of  this  bill.  They  have  strained  every  point 
in  former  enactments  against  the  Government  and  have  grown 
rich.  While  they  have  amassed  fabulous  fortunes  by  the  liber- 
ality of  the  Government  toward  them  in  the  past,  they  have 
studiously  avoided  making  preparation  against  this  day  of  settle- 
ment. 

Let  us  now  deal  with  them  as  with  an  ordinary  individual 
under  similar  circumstances.  Let  the  law  take  its  course.  Let 
exact  justice  be  done  to  all,  and  we  shall  have  done  our  duty. 

2592 


A     000  621  054     6 


